What will happen to Medicare

Many Democrats have said that one major focus of this legislation is to reduce dependency on Medicare. It has many provisions that are aimed at just that. Right now, there are many people who refuse raises, taking on extra jobs, etc because they would lose Medicare benefits if they earned more money. This legislation introduces a system of subsidies where you pay a percentage of your income for health insurance and the government foots the bill for the rest.

For a family of 4, the poverty line is at $22,050 (more here). According to the table given here (page 4), a family 133% of the poverty line ($29327) would only pay 3% of their annual income on health insurance premiums ($879.80/year or $73.32/month). This would be far more reasonable than the current annual average of about $13,000 for a family of four (which is about 44% of this person's income).

There is a lot of debate over how the government will pay for the remaining portion of the premium, I've talked about that in other posts.

The legislation also includes significant cuts to Medicare spending. The CBO said "It

is unclear whether such a reduction in the growth rate of spending could be

achieved, and if so, whether it would be accomplished through greater

efficiencies in the delivery of health care or through reductions in access to

care or the quality of care. The long-term budgetary impact could be quite

different if key provisions of the legislation were ultimately changed or not

fully implemented." (here, page 14)

That is to say that rationing of care is a possibility. The CBO also says that they don't even know if it is possible to reduce Medicare spending to the levels that this bill requires.

The bill also reduces reimbursement rates to doctors. The annual increases are expected to be below the rate of inflation. Many have voiced concerns that this reduction will increase costs for those with insurance.

The Conclusion

There are some positive measures in the bill in terms of Medicare; however, it introduces significant cuts that will have disastrous effects if the costs of health care are not significantly reduced.

How does Health Reform Affect States

The CBO has estimated that the cost will greatly exceed $140 million per year, here (pages 15-16). What about the bill is going to cost them so much money?

One provision that has the potential to have a big effect on states is the formation of high risk pools. Many of the details of the high risk pool such as cost to those insured have yet to be determined. However, many specifics are already known.

The high risks pools will be in place until 2014 when insurance companies can no longer deny health insurance to those with pre-existing conditions. The federal government will provide $5 billion in funding but the program will be run by the states. It is not currently known if the $5 billion will last until 2014. (It works out to be an average of $25 million per state per year.) Any amount in excess of that allocated by the federal government will have to be made up by the states.

The other danger to states comes in the form of Medicare. The legislation significantly cuts funding to Medicare. If significant improvements are not realized in the delivery of health care then states will have to make up the funding difference.

It should be noted that there is no guarantee of these costs to states. If the high risk pool is not over-utilized and significant improvement are quickly made in the delivery of health care, then states could even save money. It is the opinion of the CBO ( who did a cost analysis of the legislation) that this is not the case and that states will end up losing a lot of money due to this legislation.

Will it help or hurt businesses? Part 2

Businesses are going to see a lot of changes with the health care legislation. Many businesses have come out and said that this bill will cost $100 million over 10 years or 1 billion this year (at&t). What in this bill is costing them money?

Here are a few of the provisions: It introduces a penalty of $2,000 per employee that does not get subsidized health benefits. This applies to companies with more than 50 employees and does include some part-time employees. It also places a penalty if employees are stuck paying more than 9.5% of their income on health insurance. Businesses will also lose tax savings for retiree prescription drug plans. This is a series concern for companies like GM who have a lot of retirees covered under such plans. The penalties do go into effect for a few years but the tax changes go into effect in 2011.

There are a few provisions that will save businesses money. Small businesses can band together in the insurance exchanges to be into larger pools. The idea is that being in a larger pool will save money. According to the CBO, costs will increase for these pools over the next six years. It is possible for these costs to eventually go down. The CBO does not say one way or another.

What Companies are Saying

AT&T has set aside $1 billion dollars to pay for the changes. They say that the biggest cost will be the added cost to retiree health plans. They are considering reductions in coverage for their retirees.

John Deere expects a cost of $150 million a year, Caterpillar expects $100 million. Verizon is expecting a $970 million dollar hit. I could list more companies, but I think you get the idea. All of the companies mention the lose of tax breaks for retiree health plans.

It should be noted that this change in taxes does not in any way change the way that health care is delivered. The government is indirectly raising the cost of health care for retirees. There are several possible outcomes for this situation. I'll list a few and you can decide which you think are most probable.

1) Businesses will foot the bill for the extra taxes with no effect on retiree health plans.

2) Businesses will pass the costs onto retirees, who will have greatly reduced benefits.

3) Businesses will pass the costs onto consumers, raising prices for goods, but not affecting retiree plans.

4) In the near future significant improvements will be made in the method of delivering health care. Businesses will pay more for a few years but will reap significant savings in the years to come.

The Conclusion

The white house and President Obama say that this bill will save businesses a lot of money. The Business Rountable says that it could save them a lot of money, if well executed. If poorly executed, it will cost them a lot of money. The CBO and many businesses say that it will end up costing a lot of money.

Will it help or hurt businesses? Part 1

There is a lot I could say about this one so I'm going to break this question up into two posts. Today I'll talk about what the white house and CBO are saying. Tomorrow I'll talk about what businesses are saying.

President Obama and the white house staff have said that businesses are going to come out way ahead with the health care legislation, here and here. The CBO says that the annual cost to business will "greatly exceed" $282 million, here. ( 2 x $141 million, $141 million is a limit set by Congress in the Unfunded Mandate Reform Act, which I'll talk more about in a later post. ) Of the three, President Obama is the only one to provide a specific number, $3,000 per employee.

President Obama got his information from the Business Roundtable, here. The Business Roundtable is a group of CEOs from leading US companies. The report they issued came out in November of last year. The legislation was not complete then, but many of the major ideas were already there. The basis of their argument ( page 7 ), is that if significant improvements are made in the delivery of health care, this bill will save a lot of money. If significant improvements are not made, then it will "only make the existing cost problems worse." They also say that a $3000 savings per employee is a best case scenario ( not the most likely scenario ).

The CBO estimate is not very specific, but they do say the opposite of what the Business Roundtable is saying. There are several important differences to note. The CBO report does not say anything about the costs to businesses after 5 years. It is possible for the legislation to have significant costs to businesses now and save them money in 10 years. The CBO report also contains estimates for the entire health care bill, including the reconciliation bill, estimating the cost of the original bill to greatly exceed $141 billion. The reconciliation bill contains many provisions that save the federal government money, but also many that cost businesses money. The CBO states that the cost of adding to the reconciliation to the original bill will also be much greater than $141 dollars (page 16). ( That brings their total estimate up to much greater than $282 billion dollars. ) The CBO also feels that the cost of this legislation will greatly depend on improving the delivery of health care.

The Conclusion

Who can we trust in such a situation? The Business Roundtable gives a best case guess. The CBO gives what they feel is most accurate (though quite vague). The one thing that the two agree on is that the bill must improve the delivery of health care to have a chance of saving anyone any money. It is also important to note that neither mentions just improvement, but both say significant improvement. If significant improvement doesn't happen, then everyone will be paying a lot more for health care in 10 years.

Will it Lower the Federal Deficit?

This is one of the most heated questions when it comes to the health care debate. A lot of people were caught of guard by the Congressional Budget Office (CBO) estimates. There have been accusations on both sides about the accuracy of the estimate. I have read several articles that state that CBO estimates are historically too optimistic. On the Today Show this morning, President Obama said that they are historically pessimistic. Both of these groups are wrong, and the CBO says so, here under "How accurate are CBO budget projections?" They clearly state that their estimates are not intended to be used to predict future budgetary outcomes. The accuracy of their estimates is dependent on a lot of factors that they legally can't take into account.

The CBO estimates that this legislation will reduce the federal deficit by $124 billion over 10 years. If the deficit isn't $124 billion lower in 10 years, it doesn't mean that the CBO was wrong. The CBO makes several assumptions when they produce a cost estimate. I'm going to analyze several of them here. As you read over these, remember that a lot of very smart people put a lot of effort into these estimates. They may not be completely accurate, but they are the best that we can do.

The 10 year estimate

The CBO can only consider the effects of legislation under current law. That means that if Congress makes a change to the health care legislation in five years, the estimate is no longer valid. So the real question is, how likely is Congress to change this legislation. In the CBO's estimates for the Reconciliation Bill ( pages 13-14), they state that this is not often the case with major legislation. They give several examples related to health care, in which Congress has taken actions that have increased costs.

It also says that this legislation "put[s] into effect a number of policies that might be difficult to sustain over a long period of time." This includes significant reductions to reimbursement rates to doctors for Medicare services. If Congress reduces or eliminates these reductions next year, then the cost of this bill will change significantly.

A panel known as the Independent Payment Advisory Board (IPAB) will be formed with a responsibility to find ways of reducing the cost of health care. On page 14, the CBO states the assumption that the IPAB will be fairly effective at reducing costs. If they are less effective than expected, then the legislation will cost more. If they are more effective, it will cost less.

The 20 year estimate

The CBO estimate does not contain the $1.2 trillion dollar figure. What they do say is on pages 11-12. Many times, they mention the imprecision of estimates so far into the future. It estimates the savings to be in a "broad range" about .5% of the Gross Domestic Product (GDP) in 20 years. The $1.2 trillion dollar figure is estimated to be .5% of GDP in 20 years. The broad range means that it very well could cost $1 trillion dollars or save $2 trillion dollars. They just don't know. It is, yet again, important to note that any changes to this legislation in the next 20 years will change the cost estimates.

The Conclusion

Are the CBO estimates accurate? No. They were never intended to be so. The CBO is required to provide estimates using only current law. Invariably, things will come up. Congress will pass laws regarding health care. The CBO can't predict what actions Congress will take and those actions could have great sway on the final costs of this legislation.

Will this legislation lower the deficit? We don't know. Lots of changes may come up over the next ten years.

I only covered a few of the assumptions here, but if you want more information, read the CBO report.

Will it Raise my Premiums?

The first question that many American's ask about health care reform is "Are my premiums going to go up?" On www.whitehouse.gov, this is the first question that they answer. The answer they give is simply, no.

This is a contradiction of the estimates provided by the Congressional Budget Office (CBO). The CBO is a non-partisan federal agency that provides estimates for the long term costs of legislation. The CBO has been chosen by government leaders to be the authority on the cost of legislation. Many people question the validity of the CBO estimates for this bill. That's a topic that I'll cover in a later post. For right now, we will assume that they are accurate.

The CBO gives estimates for health insurance premiums for the year 2016. The data is available here in a table on page 5. They divide people into three groups: those who buy their own insurance, those who work for a small company and those who work for a large company. I combine small and large businesses in my discussion because the effects are similar.

I buy my own insurance

The CBO estimates that your premiums will be 10 to 13% higher in 2016 with this legislation than without it, which works out to be an additional cost of about $2000 a year for families or $300 for individuals. If you make less than $88,000 (families) or $43,000 (individuals) than you will be eligible for a subsidy. In which case, you will probably pay a lot less for insurance than you are now.

If you do not receive subsidies, then you will pay more for health insurance according to CBO estimates, 10 to 13% more in 2016.

The estimates given are for 2 years after the insurance subsidies take effect. It is doubtful that the 10 to 13% jump will happen all at once. If we average the jump over 6 years, it works out to be an increase of 2 to 3 percent each each. Note that this does not mean that your premium will be 2 to 3% higher next year. If your insurance would have raised your premiums by 5% next year without this legislation, then they may raise your premiums by 7 to 8% next year with this legislation.

I get health insurance through my job

The CBO does not expect a significant change in premiums those who have health insurance through their job. However, you may still end up paying more for health insurance.

In the CBO cost estimate for the reconciliation bill, they state that significant costs will be placed on both states and the private sector, here (page 6). It states that the annual cost will be significantly greater than $141 million, which is less specific than I would like. Several businesses have released estimates on the costs placed on them, including AT&T, who estimates the cost at $1 billion, here. Several businesses have said they will cut benefits because of the costs that are placed on them, which would place more costs on you. These costs to businesses were anticipated in the CBO reports.

As an example, lets say that your employer pays 80% of your premium and you pay 20%. If that is cut so that they pay 60% and you pay 40%, then you will be paying twice as much for your premiums each month. The total cost of your premiums may not rise, but the cost to you may.

The Conclusion

There are a lot of Americans who will end up paying less for health insurance under this legislation. However, there are many who will end up paying more. It is not right for the white house to say that no one will pay more money, when the CBO estimates do not support that claim.

Why you need another source on Health Care.

I have spent a lot of time trying to figure out the details of this health care legislation, and it's pretty hard to come by. Newspapers, TV new anchors, and politicians all have to put their own spin on it. It pretty much comes down to this, when Democrats tell you about health care reform, they'll lie to you; when Republicans tell you about health care reform, they'll lie to you; and even when President Obama tells you about health care reform, he'll lie to you.

In my search, I have not found a single source that conveys correct information in a manner that is simple to understand. After reading false information on www.whitehouse.gov about premiums, I decided something had to be done. It is not my intent to tell you whether or not health reform is right or wrong or if it's constitutional. I simply want you to know the facts.

To the best of my ability, I will provide the facts in a manner that most anyone can understand. I will provide links to my sources so that you can look them up and verify the information for yourself. I will also provide a list of sources that have been found to provide inaccurate information and should be avoided. If you have a question that you would like me to answer, please let me know and I'll do my best to find the answer for you. In the end, I want you to be able to make an informed decision about this legislation for yourself.